This blog was last updated on September 2, 2021

Tax authorities have increased their focus on the insurance industry to ensure Insurance Premium Tax (IPT) and parafiscal taxes are collected correctly, accurately, and on time.

Operating in multiple countries inevitably means also having to comply with many local regulations in line with IPT statutory and parafiscal filing. Compliance regimes can be simple or complex, but the difficulty is that they’re varied.

Territories change their filing regulations frequently and without a representative in the territory it can be difficult to keep abreast of these changes. Filing administration can also be a hard to navigate as many counties require filing to be in their local language and have a set filing date. Without key local knowledge and expertise, insurers can run the risk of noncompliance. The consequences can be severe so it’s important to understand each territory’s specific requirements.

What are the consequences of IPT noncompliance?

The consequences of IPT noncompliance aren’t limited to statutory or legal penalties, the indirect costs to a company are often more significant. These include the inconvenience and cost of correcting a mistake, additional associate or representative costs and noncompliance could also have an impact on the company’s reputation.

The most common consequence for late or incorrect filings are penalties and interest but if there are inaccuracies in monthly reporting this could lead to audits from the tax authorities.

Territories with particularly strict penalties for late filings and correcting include Great Britain, Germany, Spain and Italy.

Great Britain IPT penalties

• Reference: Para 15, Sch 7, FA 1994 and para 4, Sch 24, FA 2007
• Penalties can range between GBP 250 and 5% of the unpaid tax, with a penalty of GBP 20.00 per day after the due date
• Inaccurate filing or payments can be charged between 0-100% depending on whether the disclosure is prompted or unprompted and whether the error was careless, deliberate or deliberate and concealed. HMRC officers can exercise discretion within the confines of the penalty regime

Germany IPT penalties

• Late filing penalty can be up to 10% of the unpaid tax (Section 152 of the German Fiscal Code) Late payments penalty is 1% of the unpaid tax amount (Section 240 of the German Fiscal Code)
• Late or corrected declarations usually involve further requests from the German tax authority to clarify the submission
• Corrections of the return shouldn’t be subject to the late filing penalty, however, if the reason for the filing is not deemed ‘excusable’ it may lead to a penalty

Spain IPT penalties

• Late filing or payment (Artículo 27.1 de la LGT) can be up to 20% of the unpaid tax
• The penalty amount will be reduced by 25% if the payment is made within the prescribed period set by the tax authorities and in a legally established manner
• In case of non-payment of the penalty, the penalty amount can increase by up to 20% with the tax authorities having the power to physically enforce the debt

Italy IPT late filing penalties

• Time-based penalties and interest apply. The penalty percentage is banded depending on the number of days after the deadline the tax is settled and can be up to 5%. Additional interest is charged daily at the prevailing annual rate
• Keeping IPT Books is a legal requirement and should be readily presented when requested. Failure to do so can lead to penalties being applied for non-compliant or missing IPT Books

Although penalties might not be imposed in most territories with an IPT regime in Europe, interest will almost certainly be applied to any late payments or non-submission declarations.

In addition to the monthly statutory filing, some territories require annual reporting for IPT and parafiscal taxes and failure to submit these reports will also attract penalties. Tax authorities can also request detailed information at the insured level, with some requiring insured policyholder details to be reported.

An increasing number of tax authorities have introduced online submissions to close the tax gap and provide greater transparency and accuracy in the collection of taxes.

Insurers need to be aware of their compliance responsibilities by keeping pace with this heightened degree of complexity, scrutiny and change. It’s becoming essential for insurers to have a dedicated team for compliance risk management.